There are many existing home or commercial mortgage amortization methods. One of the most common is a conventional fixed rate mortgage where the borrower pays a fixed monthly amount based on a fixed interest rate for the duration of the mortgage (for example, 30 years). The advantage of this type of mortgage is that the borrower knows what his or her payment will be for the entire duration of the loan. A disadvantage of this type of mortgage is that if the prevailing loan or mortgage interest rates drop or the prevailing interest rates on various savings or investment accounts rise, the borrower can not take advantage of this situation without refinancing the loan which is often a costly undertaking.
In years past, the fixed rate mortgage loan has been the most common type of loan. This type of loan suited most Americans who typically stayed in one home for all or nearly all of their entire adult lives. Most homeowners, however, are now not staying in one home their entire adult lives but rather, are moving on the average of every seven years or less.
Another common mortgage amortization method is an adjustable rate mortgage (ARM). In this method, the borrower's interest rate changes on a periodic basis (for example, every month; every quarter; or every year) and therefore, the loan repayment amount changes accordingly. This type of mortgage amortization method suits many homeowners who are either moving frequently or who expect significant increases in salary within a short period of time. The disadvantage of this type of mortgage is that should interest rates rise, the borrower will see a corresponding rise in his or her loan payment.
Lastly, an additional mortgage payment methodology is commonly referred to as the “biweekly” mortgage which attempts to reduce the interest paid by the borrower by making payments every two weeks instead or once per month. This results in lower eventual interest payments and the actual payment of one additional loan payment per year. The difficulty for some borrowers with this methodology is that some borrowers may not have the additional funds required for this payment method or may not qualify for this payment method.
Accordingly, what is needed is a novel system and method for providing a loan amortization calculation method which allows the borrower and lender to share in the accumulated surpluses from the loan repayment; while still ensuring that the lender will make a sufficient minimum return on their investment covering their costs of lending the money, servicing the loan and a reasonable profit. Borrowers benefit by having more of their monthly mortgage payment go toward paying down the principal balance rather than interest payments. The lender can earn a higher return based on the way it invests the principal portion of the borrower's monthly payment and can also pass some of the bank's higher return back to the homeowner or borrower in the form of additional principal pay downs, benefiting both the lender and the borrower.